On the Identification of Interdependence and Contagion of Financial Crises

28 Pages Posted: 5 Nov 2017

Date Written: December 2017

Abstract

In this paper we propose a new framework for modelling heteroskedastic structural vector autoregressions. The identification of the structural parameters is obtained by exploiting the heteroskedasticity in the data naturally arising during crisis periods. More precisely, we provide identification conditions when heteroskedasticity and traditional restrictions on the parameters are jointly considered. Although the framework is general enough to find potential applications in many empirical economic fields, it proves to be well suited for distinguishing between interdependence and contagion in the literature related to the transmission of financial crises. This methodology is used to investigate the relationships between sovereign bond yields for some highly indebted EU countries.

Suggested Citation

Bacchiocchi, Emanuele, On the Identification of Interdependence and Contagion of Financial Crises (December 2017). Oxford Bulletin of Economics and Statistics, Vol. 79, Issue 6, pp. 1148-1175, 2017, Available at SSRN: https://ssrn.com/abstract=3064388 or http://dx.doi.org/10.1111/obes.12188

Emanuele Bacchiocchi (Contact Author)

Università degli Studi di Milano ( email )

Milan, 20122
Italy

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